Ruben Hernandez is co-founder & CEO of DevLabs, an Oakland based company that accelerates tech start-up companies founded by outlier entrepreneurs from small cities and rural towns around the world.
TRANSCRIPT
Speaker 1:Method to the madness is next. You're listening to method to the madness of biweekly public affairs show on k a l x Berkeley Celebrating Bay area innovators. I'm your host, Lisa Keifer, and today I'll be interviewing Ruben Hernandez, cofounder, CEO and resident rainmaker at Oakland based Dev labs. Welcome to the program Ruben. What is Dev labs?
Speaker 2:Dev labs is [00:00:30] what we called an accelerator. Fun is a combination of supporting entrepreneurs, identifying, supporting entrepreneurs to become investment ready and then invest in them actual cash, so we do a lot of support services for innovators and entrepreneurs all over the world and then we're also provide investments of anywhere between 25,000 to a hundred thousand dollars.
Speaker 1:Okay. I read a lot about these kinds of organizations. You're Oakland based. Maybe you could explain how are you different from all the other vcs [00:01:00] and other people trying to raise money for these entrepreneurs?
Speaker 2:Yes, we're different because it's our own money. Dev labs was founded by two people who, myself and Jose Lopez and we had a software development company and we took the profits from our software development company to create our own fun because we felt that there was not enough VC or angel capital money going into first time entrepreneurs from what we call ally or communities outside. That's why we're in Oakland. [00:01:30] Oakland is considered an outlier communities outside of San Francisco and by Silicon Valley. Right. So Silicon Valley doesn't consider Oakland as part of the silicon valley ecosystem. But so we're just outside of of that. And with that premise, we have recruited entrepreneurs from cities like Fresno, Phoenix, Houston, uh, we go as far south as a southern Chile where, um, you know, 600 miles south of the main hub in South America, Santiago where 600 miles south of that. [00:02:00] So we don't go to those major hubs where there's a lot of overvalued and overhyped businesses or entrepreneurs. And also the, the, the VC industry is, is fighting for the sort of the same entrepreneurs. Right? No one is really looking at that first time entrepreneur that is solving problems in a very different way. Then there's third or fourth time entrepreneur.
Speaker 1:It also opens opportunities for people who haven't gone to MIT and Stanford where they've been trained either in business or engineering or software development, whatever. [00:02:30] Doesn't it open it up to people who maybe don't even have high school or college education
Speaker 2:delivery? We actually have a few startups in our portfolio that are founders are and they didn't even get high school degrees. Right. Um, a lot of our founders are from public universities, like you said, cal state universities, the Arizona State University system, the public university system in Chila and Columbia. We don't, we don't recruit from the top universities.
Speaker 1:Do you recruit from only universities or can it be anyone? It
Speaker 2:[00:03:00] could be anyone that is solving a problem and using software to solve that problem. Your software only. Only software. I'll tell you why that is important because it has become so cheap to develop a low cost, I should say to the developed companies that you software to solve problems. And we focus on four major industries, agriculture, education, health and finance. So anything that deals with access to those four major things. If you look at just the GDP of the United States, about one and a half trillion dollars go [00:03:30] to health care one, one point $1 trillion goes to education. The finance sector is huge. So when you look across the world, those four major verticals are essentially the big, the big problem. And you know about these, you spend a lot of time in the San Jose Chamber of Commerce. Yes. I guess you also led a bunch of trade missions. So is this what led you to this idea?
Speaker 2:Yes, absolutely. Interacting with these different countries and seeing what they need [00:04:00] and that's where I learned that software was the future for investment. Um, because with the greatest San Jose Hispanic Chamber of Commerce, I was leading trade missions of n u s investors. Going to countries like you know, as far as Indonesia, India where we were looking for investments and energy. I in agriculture but massive 2030 $40 million projects. I saw that the returns on those investments were going to be, you know, many, many years later, 30 years, 40 years later in software you, [00:04:30] you have typical 40 to 70% gross profit margins in year one if you do it well and projects that are more energy intensive or you know, physical assets intensive, you have a lower margin. So you, you need to wait longer to get your return on investment. With software you can, you can get your return on investment and get really large multiples within 10 years.
Speaker 2:I cannot go by myself just with my own money to go and invest in, in a $20 million and not at this stage of my life, but [00:05:00] I can go and invest 10 20 $40,000 into a team of two that is disrupting the agriculture industry. Are you opening up this to other investors at some point? Yes. So we've been around for three years almost. And we just launched a fund in Chile with limited partners, mostly US investors. And the government of Chile has a program that they do a match that three for one they call it. So it's essentially a credit line. So for every dollar that we bring [00:05:30] in as private investors, they match it with $3. That's the only place you're doing that right now? Right now, yes. We're planning to probably come back here and in the U S and raise a fund here in a couple of years.
Speaker 2:Right now we're focused on raising money for our fund. And Sheila also, you know, we're working very closely with the World Bank and the governments of Jamaica, Barbados and the Caribbean to do something very similar next year. Um, we were already working with lots of startups, the Caribbean, and it's going really well. What do [00:06:00] the people you invest in get out of this before they even start making any sales? So we encourage our startup entrepreneurs to not ask for any money until they have actually reached at least $50,000 in revenues. So they need to be generating some revenues, but before the $50,000 what we do is we support them, we support them with product development engineers, with salespeople, and we, we spend maybe anywhere between 10 to $15,000 in services [00:06:30] for them. We don't ask for any equity at that point. We what we want to see as how quickly can they get to $50,000 right?
Speaker 2:You're giving them business skills. They have to have some sort of business skills. We can, we don't do coaching and training, you know that they're there is they need to tell us what they need. Like if they say, well, I'm trying to go into this next market and I want to hit a big customer, can we strategize on how to do business development so that I can get that next contract? So that's, it's more hands on a, I [00:07:00] would say [inaudible] hands-on advice. And because we have the vested interest in potentially investing in the future, we want them to get that contract. So when they come to us, when they reach that $50,000 mark, then they're more confident and the negotiation becomes more equal. Lots of first time entrepreneurs don't really understand what it is to raise money and one of the expectations behind raising money.
Speaker 2:And we don't want any really upset entrepreneur cause our longterm view is that we want to turn [00:07:30] this entrepreneurs into very wealthy individuals. You don't want to control the company we don't want. So once they reach $50,000 we do investments anywhere between 30 to $100,000 for five to 15% equity on the company. No board seats. We don't want to run their company. We really want to have them create a company and feel that they have a, they have the bandwidth to do that. There's a lot of doubt from today's vcs. Absolutely. You also always have to look into what is the source of capital, who are the LPS [00:08:00] in this funds? Uh, when, whenever you as an entrepreneur go and raise money from a VC because that will drive the type of company you are going to be creating. Right? Or building, so that's a major difference and that's why we're taking our time to raise money from outsiders because the investors themselves need to have demonstrated something that they actually care about the entrepreneurs and they want, they want to be equals what the entrepreneurs, they want to to be real partners with the entrepreneurs, so we've drawn already [00:08:30] done it.
Speaker 2:We use our money. We have figured out ways to bring the confidence level of the entrepreneur high enough to for them to feel that they can, they're negotiating as equals and then we're going into a partnership together so that we don't get some nasty divorces later. I read that the in some report that I have fun actually lasts twice as long as a marriage in the United States and the average man. So you have to be really picky about who you're bringing as your co-investors or your limited partners in your fund,
Speaker 1:your website. I really like it. There's [00:09:00] a section that is your blog where you focus on a lot of these companies. Can you talk about a couple of the things you're working on right now? Sure.
Speaker 2:People come to us with ideas. One of the people in there as I'm teaching is called teaching excellence network. And it was very interesting. It was actually a professor from San Francisco state that has had an a really brilliant idea and not just an idea, but he had proved that for 20 years that in order to raise the grades of students, you have to have good [00:09:30] relationships with the kids and the families. And he was a, a teacher in the Oakland unified school district for years and he was able to raise some, some foundation money. And then, um, he went through the process of working with us and he created a startup essentially that does, uh, what we call teacher feedback and evaluation from the stakeholders in the school. They have parents that they, students that other teachers, they administrators, uh, this was, you know, a major success because it included everybody and it w [00:10:00] it was measurable quarterly and we created a software platform to make it easier and faster for all the stakeholders to provide that feedback in a very healthy and friendly way so that it doesn't, the, the information is not used against the teacher is actually used for the teacher to enhance their, their performance in the classroom and with the relationships with children, other parents and, and other teachers.
Speaker 2:He is a San Francisco state professor, but he lives in Oakland and his is an Oakland based organization that [00:10:30] has done very well. What about Labor and labor x? Yes. They are looking to increase diversity in the labor force. So they're doing a double sided marketplace, which is a very difficult thing to do. And that's one of the set mean you look at a physical marketplace, right? You got to get suppliers and consumers into a physical place to buy stuff, right? And platform's the same thing. You build a platform to bring suppliers and buyers into a platform. So labor x is a, is a double sided marketplace [00:11:00] for four diverse workforce, right? And we have been working with labor x to sort of help them hone in their business models. So that is more of a business to business software business model, right? Cause it's really difficult. You have to raise a lot of money. It's more than the cost of recruiting people on both sides and labor. Actually you have to get employers and potential and job seekers onto the platform and you have to make it so that is economically feasible. So a lot of the work that we are doing with [00:11:30] labor x is just trying to figure out how they can just focus on one side of the market so that they uh, they can deliver value for either the, the employers or the or the job seekers.
Speaker 1:If you're just tuning in, you're listening to method to the madness, a biweekly public affairs show on k a l x Berkeley Celebrating Bay area innovators. I'm your host Lisa. And today I'm interviewing Ruben Hernandez, the Co founder and CEO at Oakland based Dev labs. [00:12:00] What I read is that you are looking at untapped talent pools like you know, veterans and immigrants and people without college degrees. And there's a lot of people on the street that have talent.
Speaker 2:And what's unique about us too is that we provide a lot of the infrastructure support. Like if you're from out of town, we have apartments and people can stay for a period of time in a couple of weeks, two, three weeks. Kind of just get them going, get them in an ecosystem that's different from other cities outside of Silicon Valley, and then get, get exposed [00:12:30] to, to a community of potential buyers, potential investors, potential partners, potential employees. There is a very proven model where if you are from a small town within a cost of living is low and you have software developers, they're keeping, they're develop good products from those communities and selling in the higher income communities or cities like San Francisco, Oakland or New York.
Speaker 1:So you're assuming those little places have high speed Internet.
Speaker 2:They do little [00:13:00] places like you go down to Tomoko and down in Chile it's like state of the art, uh, access to, to the Internet. And technology is a, when we're talking about cities that we work in, where we look at cities that have, has already an ecosystem, like public universities with a large number of students. So you must have that infrastructure to support, uh, this small city and, and Chili [inaudible] 150,000 people. There are 15 universities, 50,000 student population. So it's a large [00:13:30] number of students that are in, that's a lot of talent and, but the market is very small. Like when, when you look at the, the marketplace in terms of jobs, they have to migrate to a Santiago to get a job. But at the same here in California, right, if you're going to, to Chico state, humble state, Fresno state, you have to go to a bigger city to get a job. So,
Speaker 1:so this is really great for local economies. It'll keep people in these areas, right? I mean,
Speaker 2:and they're very happy and we're, [00:14:00] we've proven it already. We're actually, we're attracting more people to come back to Oakland now because they see, well I'm from Oakland, I know people, I know how to live in a very frugal way so I can build a company. Right. And the same thing's happening with people in Fresno that we're working with our people in Phoenix, they come here, they get, they get the exposure, they get the access, they go back to, to their towns and they start building and whenever they want to they want to sell and they sell to the bigger markets. That's why we do software and we focus exclusively [00:14:30] on software.
Speaker 1:How many people are a part of this investment group?
Speaker 2:So the co founders of Dev labs are three of us. And so we have a, what we call Dev labs ventures as a limited partnership. Oh it's just three people. The chiller fun is a limited partnership with uh, we're right now about to close it. We have about 20 in that and that pool. And now we're looking to come back eventually to Californian and start a fund here. We'll probably, there'll [00:15:00] probably be a couple of years apart of is that something different from an investment? So I scroll up. A bullet is actually an adult school in San Jose and East San Jose. Most of the people there are, they average age is 31 so they are adult schools. They come from other countries, mostly from Mexico and they come and they go to that school to learn English to get their high school degrees or get certain certifications and a lot of them have businesses.
Speaker 2:So we look at them as a potential source of software based companies [00:15:30] that they can build. We started a program, they're more of a, what we call a fellowship program where people learn how to code very quickly and they launched businesses, software businesses very quickly and we have to like, and that's why we call ourselves, just go out and discover you are also in Kibera. We have to, there's the, we have to create the deals and that's why it's important for us to work with local governments, with local foundations, local schools, universities, because the deals are not there for the picking. The ecosystems [00:16:00] are just getting started in many of the cities. So we have to really go top down with stakeholders at the ecosystem level and then bottom up from local entrepreneurs that want to want to grow faster and we show them very quickly the advantage of doing a software business versus a service business or a physical product or or you know like uh, a lot of the government programs outside of the u s and even in the u s that to a certain extent are promoting this small business mentality, which is great, but [00:16:30] it only, it, you can only grow so much as it's more business because you need capital to grow and there's software business.
Speaker 2:You don't have that, that barrier. Yes, exactly. That huge overhead. You can build companies that are generating revenues one to $2 million with two or three people in it, you know, but there are companies that are also generating that kind of cash and employing 2030 people. So the, the, the employment part is really important because out of this, this sort of like coding camps and entrepreneurship bootcamps, what we get is sort [00:17:00] of like a 60, 40 split where 60% of the people that go through this experiences end up getting better jobs and being better employees at other startups or large companies. But then the other 40% actually start companies and they stick to, and that's a company that's a huge percentage for, for uh, for any, any program. How are you getting the word out about yourselves? We're working very closely with the city of Oakland with different initiatives where we're working with other foundations in Oakland, we're working with banks.
Speaker 2:[00:17:30] That's the ecosystem work that we have to do in every city. So we spend most of our time and energy in building those relationships to help people understand and make them aware of the opportunity for investment in software based companies. So where did you grow up? I grew up in New York. My, I moved to the bay area about 16 years ago to okay, you got an engineering degree at Columbia? Yes. What kind of engineering? I was an environmental engineer actually after graduating from Columbia, I went to work for Accenture management consulting and [00:18:00] that was um, working in their utility practice, energy and utilities and I was shipped around the world to do Major ERP system and implementations. I used to manage, you know, tens of millions of dollars in, in teams and product used to manage teams from all over the world, traveled to many countries around the world to do this, you know, lived in Europe for, for a few years in between Ireland, England, Spain and Mexico all over the u s Canada.
Speaker 2:Just doing this implementations [00:18:30] of uh, large, uh, software platforms. And then just decided when I moved to the bay area, moved to Oakland, I came into contact with this whole movement of social justice and also economic development combined. And it was, I was very intrigued because it's every country that I went to, I saw that there was this sort of movement of, of being more collaborative, being more inclusive when it comes to economic development. And I really liked that about Oakland, about the bay area. [00:19:00] And I decided to leave Accenture and start my own software development company with a, with a few people here and in a, in the bay area, uh, for a few years I did that and then the world was calling me again. So that's when I started going back to the international investment world with the Chamber of Commerce and going out and doing the training missions and then coming across really talented software engineers outside of the u s and the low cost of investment.
Speaker 2:That's what led me to have the perfect [00:19:30] background for all of this. You've traveled widely, I mean, you've seen the problem areas. Yes. I wanted to ask you what you think your greatest success has been so far in this Dev labs project? You know, that's a great question because I've been three years. I think the fact that people are listening to what we're saying and what we're doing, um, I think all the results, the focus that we've had on people, like we've had entrepreneurs that have gone through three startups already, right? [00:20:00] If you see our website, it doesn't say portfolio, it doesn't say startups. It says people, I know it's a great website Dev labs, that B c d e v labs, that VC is in venture capital. It really is a fun website to because it's very personal. Absolutely and that comes from where we believe that people are the center of all this and we are working with people whether there's the entrepreneurs or limited partners or the customers of those entrepreneurs.
Speaker 2:That is the biggest successes that we have built some really strong [00:20:30] rooted relationships with people that are trying to solve very big and very complex problems and they don't give up. They may fail at one product, not necessarily fit in, like you said earlier to this silicon valley mold of people. Exactly, exactly. And when we go to, you know, when we go to other countries or we go to other cities in the u s they kind of look to us for advising and we're like, no, we're looking to you for expertise and advice because you understand the local community. You understand the problem. [00:21:00] We can give access to larger markets, we can give access to to more capital. But first you have to prove it locally. You have to prove that you can solve a problem locally so that we can scale. We are good at scaling. We're good at taking, taking you from $50,000 to $1 million and that is is massively valuable for an entrepreneur that hasn't had the axes in millennia. Yeah. For that matter.
Speaker 1:So if an entrepreneur has got this great idea and they're working with you, are you basically to get those early revenues, acceleration? [00:21:30] Are you opening doors for them? Yes. In other words you're saying, okay, I'm going to hook you up with so-and-so and so-and-so and create a sales opportunity. Yes.
Speaker 2:So we, we know exactly what the sales process is in the sales team that it, what it should look like. So we sort of become that first salesforce. That's why it's important to have at least two people. One who was a non technical person, more the hustler and the technical person, the the, the real hacker that can manage a team of developers and the non [00:22:00] technical person that can manage a team of salespeople and we just become a more of a strategic advisor for them and and say, how can you do this faster? How can you sell faster? We hire people for them. Okay, first time entrepreneurs, they just don't know where to get that first, you know, a few thousand dollars just to hire a couple of people to do your lead generation, your contract negotiation, not even a contract, new machine, just they have to be good salespeople. That's one thing that we look at. If you can't even close on your own friends, [00:22:30] you have a hard time building a company,
Speaker 1:very technical people who develop software solutions to something aren't necessarily salespeople.
Speaker 2:It has to be a technical person that, that cares about the problem and can build a product and a non technical person that can go and stand two people location and on this understands the application and understands people and they care about going out there every day and talking to people about the problem and getting a solution out there with their partner. And so we just become a bit of a leverage for them to actually sail to either medium [00:23:00] sized companies, large companies. That's why we're only focused on business to business software because we understand that space. Um, we don't do marketplaces. We don't do business to consumer. We don't do fads. We don't do Facebook apps or any, any of that stuff. We don't do games. Uh, because the, the monetization of those business models is, it takes a long time with business to business. You can generate revenues the first month.
Speaker 1:I understand that you're involved in the tech entrepreneurship ecosystem mapping exercise in [00:23:30] Oakland. What are you going to be doing?
Speaker 2:So we have learned a lot from going into other ecosystems. Um, the ingredients for, uh, for a healthy ecosystem are collaborative ecosystem. So we're bringing those learnings to Oakland and basically starting an initiative or of saying, okay, you are stake holder and stake holder means from the universities colleges training centers are providing training and capacity building to entrepreneurs all the way to banks that are, have some [00:24:00] potential financial products that can be more attractive to entrepreneurs. Um, and we're, we're talking about first time entrepreneurs that are launching their businesses, right? Business Associations like chambers of commerce, working with them to figure out what is their specific role into making the journey of an entrepreneur to go from zero, no money to generating 50, 100,000, $200,000 in a short period of time. Because right now really our ecosystem has too many distractions [00:24:30] for an entrepreneur that we don't even know where to start sometimes, right?
Speaker 2:As an entrepreneur. So you have to spend a lot of time digging into what are the resources and how much they cost in terms of time and money. And an ecosystem should be very mindful above the life of the entrepreneur, meaning the time. So if I spent few months doing research on a, on a local problem, that's, those are few months that I'm not earning any money. So how can I bring it down to a few days, right? And then start selling the next week so that I [00:25:00] can then feel less pressured to go get a job and I can stay in solving the problem. We can buy some time. So I think, uh, as, as stakeholders, investors, ourselves, we have the, the responsibility and we also have the, the interest, the self interest to make that process faster because there's no enough, they're not, there's not enough deal flow for investors to, to find an entrepreneur and then you have to work with them.
Speaker 2:It takes a lot of work. If we can streamline the process [00:25:30] of getting customers and getting capital for entrepreneurs, that's what the tech ecosystem is. The entrepreneurial tech ecosystem is, uh, is intending to do is an ongoing process. It includes, it includes any entrepreneur could go, yes, this is just the beginning, right? Because there's so many players in the ecosystem right now in Oakland. And, uh, and you got to see the sources of capital, uh, their interests, their, their driving force, their incentives, economic incentives and social incentives because [00:26:00] it's also sometimes could be a little bit political. So if we can just narrow down the problem that we're trying to solve, then we can all come together and develop a very streamlined ecosystem. So I think this is a process of months, if not years. So we're, we're just initiating, we're leading, we're sharing information and seeing how this can evolve into something that we can, a few months from now we can say, look, this, here's some results of what our work has been able to provide to someone who lives in West Oakland, east Oakland [00:26:30] and Fresno, anywhere in the u s when they want to come to Oakland, start a company.
Speaker 2:We is really economic development anywhere you can do this anywhere. It's difficult though because Oakland has the ingredients and has the mentality. That's where I'm going. I just got off the phone with someone from Fairfax in Virginia and they're like, we just loved the bay area. You guys are the forefront of all this innovation. And transparency and I think that's what, that's why Oakland is going to attract a lot more people that can maintain the diversity and diversity in an all sentenced [00:27:00] in all sense of the of cause. We also, from an investor perspective, we also look at the diversity of capital. If you look at the diversity of capita in Oakland, you have so many sources of capital that you can tap into. That is great. You don't just have the venture capital world, you have the foundations, you have PRRS, you have credit unions, you have unions, you have unions that are creating foundations and incubator.
Speaker 2:So they're the source of capital and the and how that capital wants to be used is very [00:27:30] diverse. So that's really exciting about Oakland. What's in store for Dev labs in the next five years or so? We want to have our first entrepreneur have a major exit and create their own fun. So fun for the other entrepreneurs that we, one more angel investors. We want more capital investors that are, they're coming from first generation of these are going to be different than the usual vcs and angels. We believe so because they've experienced the problems and the pains that it takes to [00:28:00] build a company that creates value. They will, they will, their capital will be used differently, will be targeted differently. The value on people would be a bit different. That's at least that's our hypothesis. And we're validating that hypo hypotheses already. So we're successfully proving that people that are from outside of Silicon Valley, they don't want to come here, they just want to leverage silicon valley, but they're staying in their, in their communities, building their local communities, local economies, uh, being resilient, being collaborative.
Speaker 2:[00:28:30] When we look at the environment, right? Earth people, those are limited resources. Um, but the, the, what the mind can do and what the energy that we have as human beings is, is unthinkable. So I think we need to explore that a bit more and be more, be more hopeful and be more bullish on people. What advice would you give to a local entrepreneur? They need to go out there and sell. Then you just need to go out there and hustle. They need to go out there and ask people what they need. And [00:29:00] go get them what they need. That's really how economies the world has moved. And we were here because of entrepreneurs that understand value and value is asking people what they need and bring [inaudible] at lower costs. And that's why software so is so important at this point because we can deliver so many things with software at a lower cost.
Speaker 2:A lot of us aren't just missing out because we're not seen as an as an opportunity. So any entrepreneur just go out there and sell and start finding some [00:29:30] friend that is a software developer and that can, you can bring them on board to start buildings and so forth. And then they have to get ahold of you. So how, how would someone get ahold of you and Dev labs? Sure. I mean our website, you can go there. Our linkedin, our information is there. You can email me on grouping. Dev, l. A, B, s, all one word. Yes. Dot. VC C and my email is just very simple. Ruben, R. U. B. E. N. A Dev loves that VC. So email me my phone number. Five one zero three three three, [00:30:00] seven, three, three, eight. Full transparency. Let's do list. Let's talk. Let's chat. If you are solving a problem and you're running into issues with capitol or market, let's let's chat.
Speaker 1:Proven. This is great. I really appreciate you coming on the show. You've been listening to method to the madness. Tune in again in two weeks at the same time.
Hosted on Acast. See acast.com/privacy for more information.
